How Labels Pulling Out Of Spotify Are Doing Massive Harm To Themselves

from the are-they-that-clueless? dept

Just a couple months ago, we pointed out how labels dropping out of Spotify were totally missing the point. A few labels had argued that Spotify only pays a tiny amount per stream, and that was somehow cutting into sales revenue. However, two recent stories we wrote about highlight how this is becoming an even more braindead move than before. And yet, the trend continues. Just recently there were stories about over 200 labels being pulled off Spotify by distributor STHoldings, who gave the usual song and dance about not cannibalizing revenue.

Here's why that's dumb. First, as we saw in the recent study about piracy, taking content away from where people want it doesn't lead to increased sales. As the professors who did the report explained:

When NBC removed its content from the iTunes store for about nine months in 2007 and 2008, there was an 11.4 percent increase in piracy, but no increase in NBC’s DVD sales — a loss of close to $20 million, given 23,000 lost sales per day at an average price of $3. And when ABC added its content to Hulu in July 2009, piracy dropped by 30 percent. Likewise, when a major book publisher stopped selling new Kindle titles on Amazon in 2010, there was no increase in hardcover sales, and when the Kindle titles were finally made available, their sales were 50 percent lower than they otherwise would have been.

Making your content available on these platforms drives sales elsewhere. Keeping them off does the opposite. It actually hurts sales.

Add to that the release of the new platform for developers. That means that soon there will be a ton of ways to build additional revenue opportunities on top of Spotify. It'll be easy to buy concert tickets. Or merchandise. Or collectable items. Or pretty much anything you want... directly through the Spotify music player itself. But if the bands aren't there, then people will simply ignore or forget about those acts... and they'll find others via Spotify.

Hogwash

Never in the history of this country has the entertainment industry decried, vilified, and rejected a new technology or service only to have it come back a few years later and become their greatest money-maker.

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I applaud the actions taken by this RIAA label, they are on the right path and that is the path the Dodo's took.

If your enemy want to self inflict mortal wounds why stop it?
Au contraire mon ami, go right ahead, if they need help keeping that crap out of Spotify I'm the first to volunteer and help them, I can denounce any instance that their music is found over there, they can count on me for that.

My conversations with others will go like this "friend: Where can I find X? Mole Pirate:Don't know they pulled out of everywhere, but you can try Jamendo"

Some good points, but an oversimplification

I'm more in agreement with you than not, but I think this is an oversimplification. I agree that long-term opportunity for labels and artists will involve streaming services, but I think that pulling out of any single service now shouldn't be painted as a fatal mistake. Some of the decisions to leave aren't simply based on money alone.

The prime argument for Spotify and other streaming services is discovery — yet none but last.fm allow an artist/rights-holder to specify purchase URLs as a part of that discovery. Without a direct measure it's too soon to measure sales for the better or worse in outlets like iTunes or even direct from an artist/label sire...and it also makes sense that labels/artists would want to direct that final purchase URL if in fact discovery is the gift that these services are giving.

The largest argument against Spotify specifically has been the ownership stake of the major labels. As an indie, placing music on the service directly feeds the bottom line of your competition — and in a way that will never see artist compensation. Maybe not enough reason to walk away entirely, but certainly an odd pill to swallow as an independent artist or label.

Bottom line: I think you're headed towards a good point but by removing some of the nuance you've painted an unfair picture. I don't know any label people turning their backs on the idea of streaming or online discovery, but it's early days. Far too early to hand a decisive victory to Spotify.

"We cannot assure you that our domestic streaming cancellations will continue to decline or that gross new additions will remain strong. If we are unable to repair the damage to our brand and reverse negative subscriber growth, our business, results of operations, including cash flows, and financial condition will continue to be adversely affected."

On the bright side all those labels that believe in strong IP should take that instance and get their offerings off the distribution channels that others made for them.

Actually, it's dumb to release anything new and worthwhile on Spotify. There is a reason why you get movies in big theaters first, and then small dirty theaters later, and then pay-per-view, and then Blu-ray/DVD, and then rental. That way you extract consumer surplus.

Things like old songs from the 80s belong on Spotify. Anything else that still has selling power don't. That's why big and popular bands are not releasing their latest stuff to Spotify, even though they are often pirated.

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That's not true at all. Pandora actually pay way less royalty than Spotify, but is much closer to radio, in the sense that it introduce new things to customers better. With Spotify, consumers are much more likely to just listen to music they already know, therefore much weaker marketing power than Pandora or traditional radio.

Re: Some good points, but an oversimplification

This is a much better understanding of the situation. Big companies and big acts negotiated for higher royalty on Spotify also. So big labels profit both from Spotify, and the higher rate paid to them. Why would smaller labels basically use their music to subsidize big labels?

A lot of small labels focusing on niche markets are like those foreign language channels on cable. There are good reasons why they are never part of the basic package. They are not stupid. They just survive better with different models.

The choice whether to utilize Spotify or not is a subjective and personal decision. At the moment, it has yet to scale. Then again, the example that we have where it has come close to scaling is in Sweden, a tiny, specific market within a tiny specific country that has a completely different gdp and wealth distribution.

Rgardless of scale, Spotify works by volume. The majors always worked in Volume, and have other revenue streams that other labels and artists do not. They are banking on this scaling, however, if it doesn't Spotify will be more of a way to inexpensively listen to major label artists and back catalogs.

Another thing to take into consideration is that this on demand music service is now not only partnering with Facebook (potentially linking it's backend data to labels), but other trusted media outlets which will become the new corporate filters and gatekeepers when it comes to "discovery" (pitchfork etc).

While waiting for someone this morning, I was thinking about a few things and got the urge to listen to Tool. I own all of their albums, but not being at home didn't have them on my iPhone. No problem, fire up Spotify and... Tool aren't on Spotify. Bugger.

No matter, I fired up YouTube instead and listened to them there. Now, it's possible that they got money from YouTube but I doubt it - there were no ads on the videos I watched. I, of course, would not have bought their music since I already own it. So, whoever made the decision not to have them available to me screwed the band out of a small percentage of my subscription fee. On top of that, had they not been on YouTube, I would merely have listened to another band.

I wonder how many time this has happened to artists, and how much money they lose?

Re: Re: Re: Some good points, but an oversimplification

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Depending on who their label is, and whether it's on VEVO or not can effect the rate they see from Youtube. As it stands, a standard Youtube license and ad agreement brings you in at about $1 per 1000 plays, whereas a standard Spotify agreement brings you in at $.00029 per play.

So, in the end chances are that TOOL did better with your Youtube plays than the spotify spins......

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Ok,

What I mean by scale, is in it's current state, spotify offers fractions of a penny per play, so even someone with hundreds of millions of plays still sees a fraction of what would potentially come from a modest amount of sales in comparison.

If it were to get it's paid users up by, realistically millions possibly tens of millions, then the rates per pay will go up and artists will see a more realistic payout.

For many, it's still worth the gamble that people will actually pay for music, while also have some get get pirated, and still see more money than being on spotify.

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Re: Re: Some good points, but an oversimplification

It's not about if they have a "buy" link. A lot of people who might have bought the music would now just rely on the subscription to listen to the same music. That's revenue lost, and the piracy recovery doesn't really offset that enough for a lot of artists.

That's why big acts stopped releasing their music on Spotify. Big acts actually got pirated the most, but they would rather take that hit as opposed to losing the revenue stream of people buying their music.

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Re: Re: Re: Re: Some good points, but an oversimplification

It's far better for the artist to specify the purchase link, given that the rate they're paid for their music isn't universal. In the case of Spotify, their UK buy links are a (or at least were) a partnership with 7digital. That means that Spotify gets a cut, then 7digital, then the label, then the artist.

Had the artist been able to specify the link it could go to their own site or a label site where they'd certainly get a better rate on digital — plus they could offer digital+physical or digita+ticket bundles, surely increasing their bottom line.

And for an artist submitting music without a label it means they go from having a fairly large cut taken out to getting almost all that revenue.

It's basically the same argument as you'd make for buying direct from a farmer, buying from a local market, or buying from a chain supermarket.

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This is what an ARTIST would receive at current scale. Spotify has about 5 different ways they calculate revenue, this info I'm not privy to. On top of that the majors have a completely different deal with them that they will not disclose.

Another thing to consider is that apparently you only make money from subscription based spins, not the ad based ones.

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"What I mean by scale, is in it's current state, spotify offers fractions of a penny per play, so even someone with hundreds of millions of plays still sees a fraction of what would potentially come from a modest amount of sales in comparison."

OK, but this is only relevant if you assume that Spotify replaces sales. If you view it as an addendum, that is as a replacement for radio (where labels regularly pay the labels to play their music), then the amounts are an additional income, not a loss. It's only a problem if you assume that everybody who listens to Spotify does so instead of buying higher value products, which is yet to be shown by any credible source.

"For many, it's still worth the gamble that people will actually pay for music, while also have some get get pirated, and still see more money than being on spotify."

But, if that gamble loses out, those morons don't get to whine about piracy when they locked out a section of the market from legal supply.

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@Paul,

All valid points, though as of right now the info I've been seeing (and I guess the logical path that I see personally) is pointing towards Spotify replacing sales. In fact, that's their M.O. Making music "like water", which by the way is a horrible concept if they are trying to compare the two in regards to the idea of decommodification.

In my opinion, this is the only reason the Majors bought into Spotify, and are trying to push people towards it (and away from something like pandora). This model will work for people who can buy "front page" ad space and who's pr and marketing budgets can really make huge volume plays happen.

I guess the NDP and NARM study isn't up to your standards, or too soon to really make a decent call, but the reality is that once spotify has the recognition, enough of a catalog and interface that as attractive as Itunes, it could potentially take the lions share of that business, and in turn completely change the overall way the masses consume, and experience music.

What this does to the entire ecosystem is unsettling to me in many ways, though I'm sure there would still be the potential for other revenue streams to survive, not too dissimilar to how you see film still being used in cameras.

So, in regards to the morons, the jury is still out, and in my opinion it will continue to be a subjective argument, one that relies heavily on demographic, resources and expectations. In the end, there will always be luddites, in every industry, most of them complain regardless...

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I didn't make assumptions. Labels looked at facts and made decisions. The reality is a lot of independent labels and independent artists have tried Spotify and found the model to be failing for them. A lot of big pop acts find the same thing also.

I didn't say Spotify is a flawed system. It's just not a good system for everybody. Just like how you don't find everything on Netflix, regardless of piracy or not.

Spotify is great for 80s oldies, where you don't really get people buying full albums anymore. The all-you-can-eat buffet model by default devalues the merchandise, which isn't an issue for 80s oldies.

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That's just in this article. You can find incidents where independent artists with no labels coming to the same conclusion also. Do some research and you'll see it's a systematic issue.

The music business can use new models, but Spotify isn't it. Spotify is just like those all-you-can-eat buffets. Not all failing restaurants will suddenly be better if they turn into all-you-can-eat. For some of them, it actually speed up the fall.

NBC and ABC are the Lady Gagas of the music industry. Independent labels are like the Indonesia channel that most people never watched.

The market of Lady Gaga/NBC is in no way similar to indie/foreign channels.

If you have an all-you-can-eat food court, burgers and pizza would do fine. It'd be stupid for a stinky tofu vendor to try to join that. You would want to be the cheap but popular food vendor for that kind of setting ( 80s oldies!), but for specialty food, you'd better stay on your own. You are never going to get general appeal anyway. As the indie labels said, you need to stay special.

That is exactly what is wrong with copyrights, people should just buy a CD and be able to open a business and the artists should have no say on it, just like you buy a car and Ford can't come and ask for more money because you are using that car to do business.

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"This model will work for people who can buy "front page" ad space and who's pr and marketing budgets can really make huge volume plays happen"

I understand that feeling, but this is one of the reasons why Spotify is actually a good thing. They encourage people to share playlists, have APIs for people to build their own social and discovery apps and not have that capability built into their own client. While the majors may still dominate, having lower marketing budgets isn't necessarily a problem if you're clever about using the service.

"I guess the NDP and NARM study isn't up to your standards, or too soon to really make a decent call"

I'm not seeing any solid figures, and the jury's still out on long-term behaviour. Will people stop using Spotify once the novelty wears off, or use it to listen to more independent music? Do users listen to more catalogue music or use it to discover the new releases each week? Do they replace or supplement their buying with Spotify, and if they do replace it do they then go off to spend more money on other items from the artists?

"What this does to the entire ecosystem is unsettling to me in many ways"

I think it's a positive force that will have positive repercussions for the overall industry, and their consumers. But, yes, thus far it's completely subjective.

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"I didn't say Spotify is a flawed system. It's just not a good system for everybody."

That's fine and it's for artists to make their choice. The point of the article is that by making their decision to not use Spotify, the artists are potentially screwing themselves out a new audience. Especially independents, whose existence may be unknown to Spotify listeners if they don't use any other service for discovery.

But, like I say that's fine. Just don't come whining about piracy if the tactic backfires.

"Spotify is great for 80s oldies, where you don't really get people buying full albums anymore"

You've just described the exact opposite way to how I personally use Spotify. Don't let your own assumptions get in the way of reality.

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Paul, again, all great points.

To me, it's really the lack of transparency within Spotify itself (you still can't find any real numbers anywhere regarding how they calculate royalties, and when you do they're many times subjective or dated). Aside from that, seeing them team up with corporate giants (both labels, social media and media outlets) It's eerily familiar to greedy, vague old model tactics, and just points backwards in my opinion.

In some ways, it's creating the perfect storm, however, to me it seems that this type of consumption removes the fan even further from the artists in many ways. Is it true that many people with go and purchase after hearing something? Sure, but I believe this is the exception, not the rule.

As far as a music discovery tool, there are scores out there, and the numbers are showing that terrestrial radio is still the most trusted discovery vehicle. After that it's social networking, but the catalyst for that most times is another "trusted" source such as a blog or form of online media.

In turn, Spotify is more of a search engine and on demand player, rather than an actual discovery tool.

I'll be honest, I love Spotify on paper. I use it for reference as I would youtube in the past. But in many ways if it was to scale, and they were to have their "music like water" perfect world, it would look more like the past than the future....

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"To me, it's really the lack of transparency within Spotify itself (you still can't find any real numbers anywhere regarding how they calculate royalties, and when you do they're many times subjective or dated)."

...which makes them at least as transparent as the labels themselves and most movie studios and publishers as well.

"Aside from that, seeing them team up with corporate giants (both labels, social media and media outlets) It's eerily familiar to greedy, vague old model tactics, and just points backwards in my opinion."

I disagree, although I see where you're coming from. The problem is that until the average consumer learns that the crap released by the majors is not the be all and end all, any new service needs to have them on board to be of perceived "value" to the average consumer. When I was an eMusic subscriber, the forums would be constantly spammed by people attacking the service because they didn't have the majors on board. When they finally did, the prices were pushed up so far as to make it of little value to people like myself who had been using the service to buy more music than at any point prior.

Say what you want about them, but Spotify do seem to have at least managed to get a balance sorted out - they can offer the music that attracts people more readily from the mainstream, but can then offer reasonably priced service that also includes indies. However, they probably wouldn't have experienced their success so far without the majors on board. Sad but true, a reflection of how much the mainstream market has been controlled by RIAA sources. It's the same with Facebook - the reach and exposure for Spotify has snowballed since they teamed up, whether or not you agree with this or their integration methods.

"Sure, but I believe this is the exception, not the rule."

I believe differently, especially if you look at the whole picture and not just MP3/CD sales. Time will tell if it's more sustainable or whatever, but we won't know Spotify's real impact until it has been around for several years. I'm rather more optimistic, but that's based on my own listening habits so maybe I'm an exception. I'm convinced that I am, however.

"In turn, Spotify is more of a search engine and on demand player, rather than an actual discovery tool. "

How so? There's a huge amount of value in using it as a discovery tool. You can use Spotify to look at anything from your friends' shared playlists to direct links through music apps and 3rd party sites to random listening to a particular genre. You can pick an artist and stream similar artists, or you can even send songs to friends.

Surely a better way to discover music than trying to remember the name of the track you heard on the way in to work this morning on a station that's restricted to RIAA only material? Of course, this does to some degree require the user to actively rather than passively look for new music, but AFAIK the only other tools that allow you to both discover and listen to new music in full are restricted to US only.

As a consumer I pay for Spotify purely because of its ease of use and it's hassle free in terms of finding new music. If I didn't have Spotify I would be looking at other means to procure my music, more than likely with no revenue going back to the labels.

What don't they get? Even if it is a little, its better than nothing. For some reason these labels and individual artists that take their music down from Spotify seem to think that everyone is going to rush out and buy their album if it isn't there. Maybe a few will, but they also constrict themselves from new markets.

There is a lot of music I wouldn't listen to usually or have found if it wasn't for Spotify. They need to learn to conform to the way the world has changed. I will never buy music in the traditional sense ever again, and that is not because of Spotify, that happened with this little revelation called the internet.